Buy IIFL Finance; target of Rs 560: Motilal Oswal

Motilal Oswal is bullish on IIFL Finance recommended buy rating on the stock with a target price of Rs 560 in its research report dated March 06, 2024.

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March 06, 2024 / 14:12 IST

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Motilal Oswal's research report on IIFL Finance

IIFL Finance (IIFL) hosted a conference call on 5th Mar’24 to clarify the issues raised by the RBI regarding the company’s gold loan business (RBI press release), the corrective actions taken by the management, and the way forward for the company. IIFL also shared the contribution of the gold loan business to its profitability, the fixed cost of gold loan branches and the sequence of events that culminated in this RBI ban. It is difficult to predict how long it could take to work with the regulator and get this ban reviewed and revoked. However, in light of some recent episodes where the RBI banned certain activities/products of financial institutions, our base case assumes that it could take around six months to get the RBI to conduct a special audit and subsequently rectify the observations to the satisfaction of the RBI. After incorporating the impact of this ban on IIFL’s gold loan growth in our estimates, we cut our FY24/FY25/FY26 EPS estimates by 2%/14%/15%.

Outlook

The actual financial impact will depend on the duration for which this ban remains in force and we will continue to closely monitor the developments over the next few quarters. While there could be near-term price volatility in the stock, we have maintained our BUY rating with our SOTP-based TP of INR560 (based on revised target multiples on each of its standalone, HFC and MFI businesses, in light of the recent observations made by the RBI).

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